The Golden Era

From
the 1870s until World War I, the United Kingdom served as the leading
financial and banking center of the world, while gold ruled as the
monetary standard of all the major trading countries. Each country
pegged its currency to gold at a constant and unchanging rate. The
international gold standard system ushered in a period of unprecedented
stability and prosperity - at least for the middle and upper classes
in the industrial countries.

Gold
and Stability

The
gold standard provided monetary discipline. Because governments
were required to convert domestic currency into gold on request,
the amount of currency they could print was limited by the amount
of gold in their reserves.

Exchange
rates never varied in the classical gold system. This made exchanging
money much easier for travelers. American Express even printed the
exact amount of foreign currency exchange right on its traveler's
cheques.

Industrial
Revolution

Technological
advances in the nineteenth century produced more goods and created
more efficient ways of transporting them across national borders.
Governments increasingly recognized the need for easy and convenient
currency convertibility. The United Kingdom, economic and financial
leader of the world, had based its currency on gold since the early
nineteenth century. In the 1870s, Germany and other major trading
countries followed its lead and converted to the gold standard.